Psy-Options Buyout

[cloud]

I’m a casual user and follower of both mango/psyoptions and my reaction is the opposite of this. While a buyout might make sense, this is a lowball offer. Given the extreme imbalance between the tons of capital sloshing around and the relative lack of qualified devs, $1m/yr for elite devs is very reasonable. But your analysis misses two important points:

• The proposal isn’t just paying for contributions going forward, you’re also acquiring a working protocol that’s been tested and has a user base and has integrations with other protocols. The psyoptions platform alone is worth more than the offer imo even without any dev support.
• The 100M MNGO comes with a 5 year lockup, for a token whose float is 10% of the total supply.

[cloud]

Just to support my point about the current environment, see this article BetDex. This team raised $21 million (amount of the raise not amount of the valuation) with:

• No product and two engineers.
• At least 3 direct competitors who have released or are close to releasing products.
• As far as I can tell they don’t even have a discord!

[0xAyer]

I believe it’s a great idea

There will be continued competition in derivs DEXs market (not just on Solana but among all chains) so I support focusing on growth by onboarding experienced ecosystem developers and their own product (by combining it with Mango futures with the same expiries, could help onboard more MMs and further grow the options product)

With regards to the 30m valuation, it would be great to have more colour on the Psyoptions’ previous private deal and what this would mean for the firms that backed them / implications for Mango going fwd

[Hactar]

I think I’m in favor, seems like a very good idea. I think a common failure mode at this stage in Mango’s growth is not being aggressive enough–being complacent. I’m glad to see that the team is avoiding that failure mode by making use of the DAO’s warchest to acqui-hire a solid team of devs.

To emphasize, I don’t think the PsyOptions product is worth nearly the amount offered, but the team probably is. Acqui-hiring is smart.

But only if the PsyOptions team all buy mcaps (jk jk)

[AusteritySucks]

To me the obvious next step for Mango is to add options support and implement the first defi protocol on any chain to do proper portfolio margining across spot/margin/futures/other derivatives.

That said, I do not like the Psyoptions product:

• Underwriting requires full collateral
• Even the UI has been very buggy for me
• It doesn’t seem to be tackling the bigger (more interesting) problems in options, eg., capital efficiency and implementing robust risk management systems to handle it

As such, I just don’t know how useful they will be in taking Mango to the next level. There’s little benefit IMO for attaching the existing product on the side of Mango, if anything it needs to be fully integrated and the mango risk sytem rewritten to have one big harmonious experience across products. And then I’m not sure what the purpose is of having some capital inefficient basic options product separate.

One curiosity for me also is their investors – what they would accept in such a scenario – they invested what, $3-4million, and they will want a piece of the $30-40m worth of MNGO. Also, NFT options? Idk, seems buzzwordy and not really practical in terms of the goal as I see it above about powerful platform with portfolio margining across liquid options markets

Finally, I want to clarify that I do like the idea of quickly getting a dev team on to do a big new piece of Mango – I just don’t know if the Psyoptions team is the right one. With more information I could certainly be convinced.

[dipfit]

Regarding market makers, we are working on it: Mango integration for Hummingbot

Also regarding the topic: Unless there will be an increase in available markets (which won’t be in the near future due to limited oracle slots), the best way to make the product more viable is to include more derivatives. Big like on PsyOptions, their project is what motivated me to learn about Solana and market making in-depth.

[donderper]

It would be helpful as well to get more concrete details / clarity on what it would mean if this proposal went through?

[iwillnotsaveyou]

For what it’s worth, my understanding is that Mango could move to 31 markets without a major smart-contract move. That many markets in my opinion would be fine for the next ~6months and give the platform runway to v4.

In terms of PsyOptions, I think it’s a reasonable move if the mango team believes the PsyOpts team is the right team to help them build.

[dipfit]

Oh, I thought it was 16. Well then, I would also welcome this and agree with your standpoint.

[OpinionatedGeek]

Wow. A $33million deal (Buyout? Merger? Acqui-hire?) is huge. I don’t think many deals of this size have ever been done by a DAO so we’re again in uncharted territory.

I called it a $33million deal and that isn’t quite correct, though (sorry). This is an important detail. It’s not the $ that matters (to the DAO), it’s the release of MNGO tokens from the DAO treasury, since it will increase the circulating supply and dilute the holdings of current MNGO hodlers.

The critical question for the DAO is: is this the best use of those MNGO tokens from the DAO treasury? Other possibilities include: not doing anything with them, burning them, using them for incentives elsewhere, hiring other developers, buying other projects… That’s a non-exhaustive list - there are a lot of other possibilities.

So is this the best use? Maybe! I don’t know, but I do have some high-level questions I want to work through.

1. Do we want options on the Mango platform?
   Mango started as a leveraged spot platform, then included perps. Are options the Next Big Thing to add? Why? Is it because the volume it would bring is huge (and so the fees sent to the DAO make it worthwhile?) Is it because it’s important for a more-complete platform? (Come for the options, stay for the cross-margining for perps?) Is it a combination of those two things, or something else?
   Also - importantly and often neglected - what is the cost/risk of doing nothing? It’s rarely a continuation of the status-quo in crypto, and a platform lacking in one area could easily mean users go elsewhere.

2. If we want options on Mango, is this the best way to do it?
   If we didn’t have the possibility of this deal with Psy-Options, how would we go about implementing options on Mango? We’d have to bring in some outside expertise in options, and probably bring in some outside programming expertise too. (We could wait until the busy developers have time to dedicate to it, but waiting in the current crypto world seems a terrible idea to me right now.) Are people with the right expertise available right now, and what would be the cost to the DAO for that?

3. 3. How do we know what we’re getting?
   In the non-crypto world, a $33million deal would have a lot of effort spent on ‘due diligence’. There’d be meetings with previous investors, the team, and an inspection of the accounts and maybe visibility of private deals. I’ve never suffered through it, but it sounds like quite a painful process.
   What’s the process for a crypto deal? Or - better - what should it be? We’re in uncharted territory, as I said earlier, so we don’t have precedents to build upon but that means we are also in a position to set precedents for future deals. How much openness should there be for a deal like this for you to be comfortable on either side of the deal?

4. How do we ensure we get it?
   A lot of legalese seems designed to deal with things going wrong. What happens if things go wrong here, after the deal is concluded? Do we even need to worry about this or is it enough to just trust a properly incentivised team?

I don’t know much about options or the Psy-Options team, but Maximilian proposed this and I trust him, so for me that deals with 1) and 2). A lot of folks smarter than me have chimed in on incentive structures so I’m happy to sit back and watch what happens with 4)

But what about 3)? How do we know what we’re getting? What due diligence has been done? What due diligence will be done? Should we be getting outside expert advice on this?

[donderper]

So I think from the call it’s clear that there is an intention from psyoptions that this should be a more tight integration with the mango v4 or v5 program.
And with that in mind I don’t know if that’s the right path to go down immediately. I would prefer to see a longer term structural plan for integrating and onboarding more financial products (beyond just options) to the mango ecosystem, or some sensible idea of how this could work in practice and be scalable. Otherwise what you’re left to deal with is a very tightly coupled design of an options and perp futures market which is a bit messy and hard to deal with conceptually on a program level.

If I’m wrong with this assumption please correct me. Maybe the timeline for integration is intended to be longer and could be the eventual goal. But I just don’t know if it’s a sensible short term goal.

[mgnr_io]

hi all

@mgnr_io here

we have strong presence across quant trading, market making, general defi, and seed ventures

we are one of the investors in psyoptions and thought makes sense to add to the conversation

thoughts (no particular order):

• think both teams are strong and genuine builders. we like max, we like tommy, have chatted to each and believe both to be intelligent operators. from that perspective, would support the acquihire

• we were disappointed to have to pass on MNGO ido primarily due to lack of founder lockup. not sure if that’s been addressed, but imposing a 5 yr lockup on psyoptions acquisition only makes sense if MNGO founders have committed to >= 5 yrs

• seems broadly true that single highest valuation jump in crypto protocol lifespan is token launch. between private → public valuations tend to 3x - 100x…from that perspective trying to complete the deal pre-token seems like an uphill battle…psyoptions team may forego some upside?

• corollary to above: in current crypto mkt, the more tokens launched , the more value ‘created’. thus would think the sensible tactic is to try to spin off businesses into many small subs (sbf style) rather than compounding / rolling up (valeant style)

• counterpoint to above: assuming token launch pop == long term value capture is fairly myopic / bull mkt thinking. while true in the short term, the inflated prices may not endure all the way through protocol maturation / founder unlock

• back-of-envelope numbers (please correct me if wrong data here - had to make some assumptions):
  – MNGO bidding on [20%] of psyoptions original cap table (15% contributors + advisors, 5% private raise)
  – bidding 100mm MNGO tokens @ $0.32 = $32mm
  – implies PSY fully diluted valuation @ $32mm / 0.2 = $160mm
  – PSY private investors would be looking at a 2.14x multiple on the raise, with an extended lockup

• re: implied ~$160mm FDV above how does this comp vs other options protocols with live token?
  – DPX $1bn
  – RBN $2bn
  – HEGIC $360mm
  – PREMIA $240mm

bid is probably low compared to most other major live derivs (esp solana) tokens?

• as a fellow founder + operator can empathize on a human level that it’s important ppl enjoy what they’re doing, esp in crypto where we’re all having a lot of fun! if 2 groups of builders wish to work together and think they’d have more joy + success waking up every day and collaborating, we’ll 100% support the decision. no point getting caught up in corporate / numerical bullshit if everyone’s sour on life

good luck team[s] and thanks for the novel suggestion @mschneider

[cody]

Some thoughts on this from CMS —

For some context, we invested in both Mango (IDO) and PsyOptions, and think they are both fantastic teams. The idea of them coming together to build these protocols under one roof is definitely exciting to us.

We talked a bit on the Mango dev call the other day about the synergies this could bring, from capital efficiency with cross margining to simply being able to bring on some badass Solana native devs who above all, just want to build cool shit for everybody to use. For a bit of context for those less familiar with trading options, having liquid perps and similar products to use for hedging is hugely important for market makers, and many more advanced options traders in general. And options trading is very popular with retail degen traders (see r/WallStreetBets). What I’m getting at is these products fit together extremely well, and it’s very compelling to have them integrated into a single venue.

rough thoughts:

• We think it’s worth giving up some short term incentive from a separate PsyOptions IDO/IEO in order to build towards a sustainable and ultimately more powerful long term vision for these protocols

• We think the implied valuation here is too low however (~160mm) — ultimately we cannot fully ignore public market valuations that recent IDO and IEO projects fetch. There are a few comps you could make in the market right now for pure options protocols, largest of those probably being Ribbon (and this is really a structured product wrapper on top of Opyn) at ~2B, with a handful of others floating around below that

• Other Solana projects public valuations:

  • MNGO $3bn
  • AURY $1.5bn
  • JET $750mm
  • PRT $265mm
  • Mercurial $320mm

• Plenty of other examples here if you want to do some digging. These obviously span a bunch of verticals, but point is — an IEO is likely to value PsyOptions significantly higher than the proposed amount here.

• We don’t think the goal should necessarily be to beat a theoretical post-token valuation, there are enough benefits to the long term value of a combined project to warrant a discount

• 5 year lock should come with significant discount in Mango tokens value - approach investors offering Mango at spot price with a 5 year lock, and watch them laugh at you. This is also significantly longer than the typical lockup for founders and investors (Mango doesn’t have any lock)

• Treasury deals (post token launch, selling tokens to investors from protocol treasury) in the market regularly price at a 30%+ discount for ~1-2 year locks and maybe some vesting — not saying this is optimal just anecdotally how the market has looked

Above all we just want to make sure both teams are pumped to be building, and we’ll be here for the ride either way. The strong opinions we’ve heard so far are just a testament to the community that has been built, and it’s awesome to see.

– CMS fam

[mschneider]

we stacked a private round with market makers, which closed in September.

Small Recap:
Last round was closed 2 months ago. Market makers were preferred, because they are needed for psy options to work. Valuation was $14M. Comparing to market prices of launched tokens is of course desirable but a little bit more difficult. Low float, high FDV y’all know the issue. Let’s 20x return on behalf of the DAO treasury, because that’s how value is created.

Here a few tougher questions:

1. All comparison options products that have been mentioned do use an AMM, PSY needs highly technical market makers to provide liquidity on its CLOB. Which quality level wrt. the market making service has been delivered or committed to for the future? How sure can we be this service is needed, while every other team seems to work towards a different goal? @tomjohn1028 @mgnr_io @cody

2. What’s a reasonable ROI on two months of capital deployed + service? I’m aware of roughly $200M in capital bidding to buy more MNGO. Some of these bids were made by great market makers. Can we make an offer that is good enough to buy the people out that can’t commit for 5 years?

I see a path forward here that seems reasonable to me:

1. make sure the psy options team is happy
2. acquire service agreements happy to pay a good price, but we need to know what’s offered
3. repay unhappy investors, in locked MNGO or USDC whatever is preferred, don’t want unhappy people on this boat and the line is long

about lockups: we are working on allowing locked token voting. can only speak for me but i’am sure most of us, are ready to lock up our tokens to retain voting power.

[tomjohn1028]

All comparison options products that have been mentioned do use an AMM, PSY needs highly technical market makers to provide liquidity on its CLOB. Which quality level wrt. the market making service has been delivered or committed to for the future? How sure can we be this service is needed, while every other team seems to work towards a different goal?

Like Mango we took the CLOB approach as we believe over the long run it will provide the best venue for efficient pricing. Whether our gut is correct is something to play out in time, but I imagine you all feel similarly about perpetual futures traded via CLOB vs vAMM.

Our market makers have token incentives. There no hard commitments on liquidity provisions, or spreads when quoting two ways. But I’m sure a few would be willing to create hard commitments.

On the roadmap within the PsyOptions ecosystem are protocols (vaults/pools) that provide liquidity to the order book and have a pricing mechanism built in that play various strategies.

What’s a reasonable ROI on two months of capital deployed + service? I’m aware of roughly $200M in capital bidding to buy more MNGO. Some of these bids were made by great market makers. Can we make an offer that is good enough to buy the people out that can’t commit for 5 years?

I’ll leave this one for investors/others to chime in on. The team is on board long term.

How can we proceed?
As I mentioned on the developer call, the PsyOptions team is not taking its foot off the gas. I’ll spare the product pipeline details and focus on the high level. I have been building in this ecosystem for over a year now, with PsyOptions being nearly 10 months old. We have set up the infrastructure to raise on a future token and are now at the point where 2 very prominent exchanges are ready to support a December IEO.

For this buyout to happen it would need to happen quickly as we cannot delay our plans for endless back and forth discussions or the locking infrastructure to be completely built on chain. Given the locking infrastructure is not handled on chain at the moment there would have to be a bit of trust where, upon successful vote, the MNGO was transferred to a wallet controlled by the PSY Foundation. When the vesting/locking infrastructure is adequate then the PSY Foundation would lock the MNGO.

This is where things get tough… the agreement, vote, and transfer would have to be done by December 1. Otherwise we delay our plans more than we can allow.

If that is all acceptable then the last thing would be settling on an agreeable price.

At the end of the day
We are all humans and not bound by tokens. If we end up launching the PSY token and continuing down a separate path for a bit, I would still be happy to meet up, collaborate, and shape a future where these products work together for the betterment of both communities and the world.

[mschneider]

Let’s hurry up then, here’s a rough schedule, of how this can work out:

First, please make a proposal for a full amount of MNGO locked for 5 years as well as USDC budget for 6-12 months the DAO should vote on (i’ll handle the technical bits, just need you to write here on the forum). Transparency is key to getting the DAO to buy into this deal. Hence I believe it will help to break down the amount of MNGO roughly into the following categories:

1. Tommy, how much voting share do you claim, you should have a strong influence in the DAO going forward
2. Team, how much share do they get? Here are some reference numbers for cash vs voting power tradeoffs offered: Big Compensation Round future team growth should be paid for from DAO treasury
3. Service Providers like market makers, quid pro quo. Who does what and how much MNGO do they get.
4. Investors, biggest question: how much ROI on their initial contribution do they get? Needs to stay below (3,3) rates. Long term planning VCs should agree to a 5 year vesting and market rate conversion, this is a great opportunity to acquire a size-able MNGO position without buying on the open market.
5. If people were only interested in a quick flip on the token sale, that’s fine, we all know the game, but let’s return their funds + bespoke ROI in cash. Please find out how much budget you need ASAP, I already made potential buyers aware of the opportunity to buy in size at market rate yesterday. Alternatively the DAO could pay out from it’s USDC treasury, all depends on the size.

I would also appreciate a verbal commitment to execute on your current roadmap, and lead the effort of developing a design by Q2/22 as well as execute it by Q3/22 to effectively cross-margin psy options strategies with positions on mango’s perpetual future order books. Which is still in active development by the current core-contributors of the DAO and we really don’t want to slow down on it as there’s a huge opportunity to compete with dydx head on head without expanding scope towards options.

Next, we should host a community call on our discord to have people ask final questions to you and the team. We had the last call like that before the token sale, this is an equally important milestone. I’d like to propose 5PM UTC on Friday.

Lastly, the vote. It’s unfortunate, but we can’t vote on locked tokens right now and it’s slowing us down. So here’s the compromise, we will setup a new 2/3 multi-sig with the following holders:

1. Myself
2. Tommy Johnson
3. Sebastian Bor (solana labs’ governance lead, who can verify that everything is setup correctly and arbitrage disputes)

We will have all related votes transfer MNGO into this multi-sig. They will stay there until ckds (whose MNGO will also be in the multi-sig) finishes the program for locked MNGO voting (discussion is here Discord).

The multi-sig holders bind themselves to act in good faith and transfer the funds at the appropriate time. The funds will not be moved before to avoid any extra overhead, hope everyone understands, that we want to build products and not waste time moving funds around, knowing that it adds a bit of uncertainty and cliff to everyone’s vesting.

The locked token program is still in development, but here’s a quick spec:

• token grants vest linearly in monthly increments
• token grant vesting can be optionally frozen at will of the DAO, we will enable this for compensation / service grants. don’t think it makes sense for your investors but definitely for contributors.
• vested tokens need to be voluntarily locked again to retain vote weight, this applies to the current holder of unlocked MNGO

Always keep in mind, even if you work for the DAO, no one can stop you from forking and launching your own token. So this is all soft power, we do need to work hard and steer the ship towards a shared goal. I’m super stoked and looking forward to set sails together.

[donderper]

Just wanted to pop by and say lol @cms and @mngr saying that valuation is too low when they invested just two months ago at a $14m valuation

[spiral]

Re. peer-based valuation metrics:

• The order book won’t support any of these valuations in the foreseeable future, i.e. possible to add a progressive safety margin / discount for relevant quantities. Can go further & time adjust.
• Token price is a FOMO-driven & reasonably random walk; possible to adjust for launch & marketing costs as a share of treasury at launch point upscaled vs. market cap.
• In the DAO-spirit, institutional seed prices are out of reach for the community, i.e. the multiplier for most participants is way lower, i.e. perceived value transfer per MNGO awarded is way higher.
• An investor in both should probably be OK with receiving the upside in MNGO post-merge without an implicit discount.

mgnr and cms are known good guys with known incentives, just some thoughts re. valuation (–> not too low, probably).

[tomjohn1028]

PsyOptions is fortunate to be in a position where we have two incredible options on the table, whether that is join forces with Mango DAO or launch our own and scale up quickly. We’re extremely thankful to be in this position, this ecosystem, and building with some of the worlds greatest. If the Mango DAO does not agree with the deal proposed here then the PsyOptions community and contributors will launch their DAO and continue to scale vertically and horizontally to achieve our vision. There is no need to waste anyone’s time in a space that moves a mile a minute.

I believe the execution plan Max has laid out is acceptable. Below is a deal with the Mango DAO I think would make our team comfortable and happy, which is fair to all parties involved. As asked, I have broken down the split and listed out some contributions. Note the USDC component is here to alleviate tax burdens that may come from this deal and the unlocking MNGO. It is here to help long term hodlers hodl.

I am writing these numbers without much input from investors, but most have said they will support the contributors in whatever decision is made. So I focused on what will set this unit up for success. Any investors that strongly feel differently may fall under category number 5 and can reach out to form an OTC deal for another group. There are many groups, with aligned background and visions, that have made verbal commits for PsyOptions. I’m confident they would buy anyone out.

Total MNGO: 260m
Total USDC: 4.5m

Breakdown
Tommy: 71.5 MNGO

• 9 year full stack engineer. Building on Solana for over a year

Taylor: 19.5m MNGO

• 9 year full stack engineer. Built out Psy American V1, contributes part time on frontend

PSY team: 90m MNGO

• 1 derivatives Quant
  • Building open sourced market making bot
  • Aiding in architecture and protocol design, allowing the protocol devs to translate to Solana architecture
  • Managing relationships with market makers
  • Actively interviewing incredible candidates that will help us achieve the Q2/3 targets and help scale the platform(s) vertically after
• 1 protocol dev
  • Currently building out the under collateralized European protocol
• 2 frontend devs
  • Maintaining and improving the Psy American trading UI
  • Building the non-trading option/wallet management UI
  • Building the under collateralized European protocol UI
• 1 community manager
  • Driving community engagement
  • User support
• 1 marketing / BD
  • Focusing on building our partnerships with protocols for Option Liquidity Mining
  • Managing the Twitter

Psy Community: 4m MNGO

• The community has voiced concern about not getting anything if PSY did not launch a token. There should be some allocation for our most vocal supporters. They deserve to join us on this ship.
• Our incredible translatoooorrrrss

Psy Advisors: 10m MNGO

• PsyOptions has a few advisors that are or were vol traders. They bring expert knowledge with past employment at top institutions.

Investors (in order of investment size): 65m MNGO

• Alameda
  • Actively quoting two sides
  • Incredible dev and liquidity support
• Solana Cap
• CMS
  • Some click trading, actively integrating but seems like it’s a lower priority
  • Provides incredible high level support around strategy
  • Strong advisor from the volatility trading background
• FolkVang
  • Integrating
  • Strong advisor from the volatility trading background
• Wintermute
  • Not integrating yet, but ramping up on Solana + Serum
• GBV
• Solar Eco Fund
• MGNR
  • Not integrating yet, still ramping up on Solana
• Ledger Prime
  • Actively integrating for two sided quoting, has green lit some new listings
• Others

[mschneider]

Thank you for being so transparent, I think this answers a lot of the questions people have about this proposal. Looking forward to talk more tomorrow.